Doing the Right Thing: The Effect of Rotation Policies on Managers' Reports about Measure Management

41 Pages Posted: 16 Aug 2016 Last revised: 24 May 2021

See all articles by Eddy Cardinaels

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management; KU Leuven

Bart Dierynck

Tilburg University

Victor van Pelt

WHU - Otto Beisheim School of Management

Date Written: May 21, 2021

Abstract

Measure management, which involves managing performance measures by distorting reporting and operational decisions, is a common problem for firms. We examine whether rotation policies facilitate the extraction of information about the occurrence and severity of measure management from business unit managers. Consistent with economic predictions, we find that rotation policies enable firms to compensate business unit managers less for reported information about measure management in their business units. Next to this compensation effect, we also find that the prospect of being rotated causes business unit managers to report more information about measure management in their business unit. The reporting effect is consistent with our prediction rooted in behavioral economics that the prospect of rotation causes business unit managers to base their reporting decisions more on the welfare implications for the firm and less on the implications for their own welfare. Our findings suggest that rotation policies have significant information extraction benefits for firms, especially for unit-specific information that is challenging and costly to extract.

Keywords: rotation, reporting, information asymmetry, measure management, distortion, performance measurement systems

JEL Classification: D91, C92, M40, M41, M54

Suggested Citation

Cardinaels, Eddy and Dierynck, Bart and van Pelt, Victor, Doing the Right Thing: The Effect of Rotation Policies on Managers' Reports about Measure Management (May 21, 2021). AAA 2017 Management Accounting Section (MAS) Meeting, Available at SSRN: https://ssrn.com/abstract=2823059 or http://dx.doi.org/10.2139/ssrn.2823059

Eddy Cardinaels

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Bart Dierynck

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Victor Van Pelt (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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